Fidelity coverage

Started by WildD • 7 replies • 1381 views

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WildD (Georgia)
Posts: 13

Posted:

How much coverage is usually needed for an HOA. I was under the impression that this covered us in the event of fraud by a board member and or our Prop. Mngt. company.
Board members don't have direct access to the funds, so shouldn't the PM have insurance to cover this??

PitA
Posts: 1,416

Posted:

WTF

ONLY the BOD should have access to the Association's funds.

The 'management' company should PREPARE the checks, but, the association Treasurer + another designated Director should actually sign them.

The authorized signatories should be fidelity bonded for the total fund(s) amount.

WildD (Georgia)
Posts: 13

Posted:

Well we employ a full service mngt company to handle all of the finances of the HOA which includes paying the bills
To the vendors. I thought that was pretty standard.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Wild,

Would you give a stranger full control of your personal finances?
If you would not, then (in my opinion) the same reasons apply to not give full control of Association finances to a PM/MC

At the very least, the reserve funds should be kept in a bank account owned by the Association with only the Board on the signature card.
The MC can make deposits without being on the signature card.

Personally, I think the Board should also keep control of the operating funds. The MC can prepare the checks but the Treasurer should Sign them.

Who reconciles the bank statements?
If it's not the Association, it should be.

As for your question: In Virginia, per statute, a fidelity bond should "equal to the lesser of $1 million or the amount of the reserve balances of the association plus one-fourth of the aggregate annual assessment income of such association."

Our crime insurance policy acts as our fidelity bond (and yes Jon or John (I forget who brings it up) it specifies fidelity and volunteers). It covers if a Board member, Officer, Committee member or employee steals money. Cost: $444 per year.

DouglasK1 (Florida)
Posts: 2,046

Posted:

Quote:

Posted By WildD on 08/11/2016 6:06 AM
Well we employ a full service mngt company to handle all of the finances of the HOA which includes paying the bills To the vendors. I thought that was pretty standard.

It may be not be too unusual, but as you've seen from the replies so far, most people on this forum don't think too highly of allowing the MC access to association funds. My association is self managed so of course we manage our own. If you search online you'll find that embezzlement can happen either way, generally because of lack of board oversight of the MC or treasurer.

Sorry I don't have much insight into your original question since we don't have an MC. I don't know how common insurance is to protect an HOA from MC fraud, but I would be wary of relying on the MC to have coverage to protect your HOA in this case.

Escaped former treasurer and director of a self managed association.

SheliaH (Indiana)
Posts: 6,964

Posted:

I once attended a seminar where it was suggested that a HOA have a fidelity bond in its own name and not rely on the management company because they do change, the coverage might not be enough and if a claim would be necessary (heaven forbid), it would be easier for the association to file it directly.

You may want to google the subject to see what's required and then call a few companies for an estimate. Your association insurance company may also be able to assist you in making sure you have enough coverage.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Wil

My HOA (113 homes, $70K budget) pretty well let our MC run the show. Dues are collected quarterly via a bank lock box and sent to the MC. The BOD (and any owner requesting) get monthly financials. The BOD can stop payments from the lock box bank to the MC with a simple code word phone call thus the most we could be beaten out of is about one quarterly payment assuming the BOD does not fall asleep at the wheel. The MC has no access nor control over our reserves other than getting a monthly statement of such to add to their monthly statements.

Basically, the MC pretty much runs our association and all seem happy.

Do we have some exposure? Yes we do as does any association if there is a cheater in their midst. Cheaters cheat.

PitA
Posts: 1,416

Posted:

ditto John

one month exposure

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